Precious metals investment terms A to Z

Trend

Trend is the general direction – up, down or sideways – in which the price of an asset is heading for a prolonged period of time.

Definition

Trend is the general direction in which the prices of an asset is heading and is of major importance for precious metals investors since once a trend is identified as such, it can help predict future price levels.

Trends move in three directions:

Upward

Downward

Sideway

Upward Trends

These are the trends that display past rises in a price of an asset and might indicate further price increases. To illustrate, let’s take a look at the following chart, which presents the quotations of SPDR Gold Trust Shares from October 2010 to March 2011 (chart courtesy of http://stockcharts.com/).

The upward trend is marked by a blue line which is pointing upwards. Hence the trend is an upward trend.

Downward Trends

These are the trends that suggest that a decline in price took place in the past and might indicate further slumps. Let’s take a look at the following chart.

This is the same chart as above, however, now the blue line shows a downward trend. During this period of time the prices had the tendency to decline and they roughly followed a line. This type of trend is called a downward trend.

Sideway Trends

Such a name encompasses trends in which the prices oscillate around a certain level for a specific period of time. Sideway trends usually suggest that a decline or rally is likely in the future. The following chart presents the quotations of SPDR Gold Trust Shares from October 2010 to April 2011.

The blue line shows a sideway trend. The prices alternately go up and then go down fluctuating around the same level – in this case around $139 It is worth noticing that after such an inconclusive period of time a rally eventually took place. A sideway trend is called that because on the charts it seems that the prices float sideways without any extreme movements up or down (until the sideway trend ends).

Different Perspectives

In different time spans different trendsmay occur at the same time. From a long-term perspective you might observe an upward trend, while if you zero in on a particular part of this trend (therefore switching to a short-term perspective) it is possible that you will notice a downward trend. What is more, if you examine a long-term sideway trend, you will surely discover that it consists of various short-term upward and downward trends.

Because of the points raised above one cannot say that there is one trend on the market. Everything depends on the perspective here and you should adjust your perspective to the type of investment you would like to make.

Related terms:

A bear market refers to a decline in prices, usually for an extended period, in a single security or asset, group of securities or the securities market as a whole. Its opposite is a bull market where prices are rising.

A bull market is characterized by optimism, investor confidence and expectations that prices will tend to go up. During a bull market in stocks prices are expected to rise even after severe declines. In the precious metals market, however, the situation is quite different. Bear markets can last for a long time and there is no confidence that serious slumps will be followed by periods of recovery.